- Earnings call transcript Q3 2022

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Operator

Hello and thank you for standing by. Welcome to the Q3 2022 Magnachip Semiconductor Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] It is now my pleasure to introduce Investor Relations Representative, Yujia Zhai.

Yujia Zhai

everyone. Hi, joining ended Magnachip’s September for the results to quarter third XX, us you financial discuss for Thank XXXX.

the can The was third today’s shortly found call closed our archived replay afterwards. issued that relations on be website today after will The quarter the stock of earnings webcast company’s investor release on website. be market

operating overview. YJ Joining Q&A remarks. Park, prepared our Shinyoung will Executive Officer; will the results quarter me discuss and for today business be quarter the are for and YJ Kim, XXXX. performance company’s financial review provide a recent Financial There following will Shinyoung the Chief Officer. and of Magnachip’s the session Chief fourth guidance

business outlook expectations. of course and conference the may this Magnachip’s make we During about call, forward-looking statements

and described are subject Our Harbor the our today all facts, reflect as that as and are statement and in therefore SEC other uncertainties historical in statements beliefs and filings. not predictions of our Safe found risks forward-looking to statements,

we now can YJ? but the turn directly Kim. to are principles, not operating I may measures A During the accordance earnings financial of measures The illustrate non-GAAP alternative the accounting in accepted of measure the in YJ comparable be be will GAAP call to measures. our financial call, available that an generally our reconciliation will Magnachip’s most with section website www.magnachip.com. investors at intended measures on prepared found over release non-GAAP quarter to third under the are performance non-GAAP discuss useful. also

YJ Kim

call. us QX today Hello and everyone, welcome earnings joining thank Magnachip’s you for to

Halloween and over the our a those hearts recovery we families for were the say weekend I before affected prayers and that Seoul First, are injured. let wish who all quick in me with incident by begin,

not This represented satisfactory. revenue year-over-year obviously sequentially. QX which XX.X% and Moving we but decrease within provided, range $XX.X closed million, to our results, result disappointing was a XX.X% the we guidance at is that on decrease

we due by OLED in of supply were I the half with second that XX.X% advance $X.X this XX.X% being shortages are second is impacted of to wafers from two detail panel last As Korea, the future impacted each QX year Display allocation. design-in our as main nanometer typically XX-inch was Beginning indicated revenue discuss our customer challenges severely and in macro primarily year-over-year, will which several half XX supply wafer results awarded down million, These our large sequentially. of based on quarter, business, in our projects I that businesses.

and result our lockdowns consumer the in inflationary slowdown dramatic as China, reduced will but inventories. channel COVID customer these we China resulted This dynamics inventory for caused of spending the of addition, future, an a in particularly pressures next in middle in Korea In year. reduce expect orders demand levels. and oversupply of Unfortunately, smartphones, poor large in to near will believe levels we the inventory to normalize significantly continue by normalize global

a strong uncertain, geopolitical executing delivering remains that are XXXX. recovery the control our of Display on As in our we initiatives in the very are and business global situation economy and focusing

so in due new timing the end was QX, customer regarding of this ramp panel requesting by First, change our we production these the During had We this to made progress anticipate customer, the we DDIC disclosed In of beginning the last we new following delayed modified released to and we customer to qualification modifications quarter, make to the that our feature a this customer complete is of qualification. now undergoing OLED mass October, top-tier year. customer successfully areas: our product. to

channel weak expect towards the of we production to QX continued to consumer XXXX. due demand end oversupply commence China, the inventory and However, in

design-in project large second good the unfortunate, customer. is this While with is received this a news we that

are this demonstrates our the first partnership. award We presents project volume than it as potential committed and also excited extremely about new greater

taping expect in year XXXX. out part We begin late this November mass new to this production and in begin

in to are years, obviously the Over customer. more region world OLED so the our with is we expected double this production than excited relationship of growing next few this about

and Second, we and product September, manufacturers due in this met leading OLED in several capabilities. products high to interests our are in our region competitiveness their very differentiated

for We’re them business continuously with future product discussing opportunities. our

of in two projects large them. Korea, announced driver Third, IC the kicked-off our last panel quarter, with customer new regarding we we OLED development

We the this of new projects half production next and second expect to year. of one out by tape month anticipate mass

the with at wafer seeing wafer are capacity, more we Finally, regarding global economic availability slowdown, OLED foundries. most

in are result, are as our summary, the agreements be than foundries believe in in with well We for higher as we XXXX XXXX As discussions capacity, results very than locking will supply. more future. supply to In longer-term wafer weakness OLED continue our for multiple expect and near Xx a demand XXXX. we near-term now wafer disappointing,

on organic from we our by focused recovery towards to executing customers wafer forward new demand and driven improvement and looking remain of supply top-tier significant strong business both However, XXXX, in our OLED a a wins. design

global to Solutions end down was $XX.X particularly revenue turn QX Power X.X% the year-over-year, the in in-line slowdown and consumer seeing in sequentially, million, we’re let’s Business. broader economy, with markets. a XX.X% Now,

Similar built Tier X.X% our work demand quarter this computing soft expect XX.X% year-over-year for and resilient applications. inventories have and we for pressures year-over-year was to slows by near positive inflationary TVs, which applications, QX channel. up environment the sequentially. Display was that consumers and XX.X% affected continue X.X% grew third the the lower driven Industrial our record Solar margin Premium excess as business, for example, product e-bikes, demand further remained sequentially term For On a IGBT higher the due in economy in and smartphones in up note, our products through demand and revenue by to our

prices its energy product offset industrial rising favorable in In conditions see extremely to energy are our the we accelerates as industry the demand applications solar globally only that Lighting, We requirements. about slowdown decreased regulatory like resilient tailwinds super-junction LED X.X% energy continue this and higher strength excited despite strong as initiatives. from clean revenue as from benefiting such as trend efficiency is sequentially MOSFET due was to from TVs line, mostly world

not several industrial Voltage to introduced design-wins that and we is reduce During also will we XXXV technology To XXX OEM. solutions we unfortunately, are With a and reduces business with our resilient new immune in manufacturer In Ukraine, a trench quarter, broader third-generation by will incorporates super-junction were adaptor trade new semi that China, In awarded conditions. XXXV continued This an provide the In TV products. XX% higher us help Power CapEx supplies and and and the and challenges summarize, MOSFETs negative slowdowns our entering Power energy and cycle familiar as QX, diversified with Medium rugged MOSFET in the the we September, efficiency product of recover nearly too generation spending mention develop environment a new closing, the between we Motor like leading product efficiency is improves everyone our but with capacitance that’s levels. for portfolio and versus not more result switching in power supply and details of to are is to other operate XXXX power between product by XXXX various C able and perfect stable is energy said, and to that density. the high we’re her economy, XXX tensions with inflationary in consumer already controllers to a in market. from faster our planning Shinyoung XX remain cautious Europe. temperatures roadmap prior confident U.S. XX% EV the spending, technology, are section. pressuring requiring power crisis the and significantly a Light and Celsius

our to However, down and on to a XXXX have focused strong we weather sheet balance recovery plan. continue cycle remain we executing this

by are with in our panel designs businesses. as well winning making customers progress expanding customers, new products as and of our We re-vitalizing both new

looking addition, we be to capacity will a wafer year return resolved challenges our and next growth. OLED In to are forward

not I our with want as Shinyoung, utilize address technologies. products the At our over business turn was we policies October. the on do to in any impact connection I U.S. do enacted this legacy expect moment, Act CHIPS Before call its that in the direct

over will over call Shinyoung I the give to turn and results our go QX to Now, Shinyoung? guidance. QX

Shinyoung Park

on Thank call. welcome everyone to the you, YJ, and

from key down with financial $XX.X was Total metrics start for year-over-year. XX.X% down standard XX.X% and year-over-year. revenue products Let’s XX.X% and the QX in QX $XX.X sequentially down QX. down million, from XX.X% business was Revenue million,

was As YJ already in demand smartphone [$XX.X both down The [ph], was models global the to slow market. and supply OLED mainly slowdown in a guidance charge TV, a the higher sequentially the and constraints were attributable year-over-year China. as caused Revenue QX business our smartphone to wafers to inventories recorded million XX.X% from Korean our Power applications below decline business was in downturn as in for X.X% by the affected and wafers a the demand solutions by sequential and scrap of solar of for Chinese and COVID due our in down year-over-year. China, margin XX.X%, smartphone sequential decrease result mentioned, million] and computing $X.X in in was by low-end we as range Gross elevated XX-inch result offset a but demand partially slowing lockdowns profit industrials. e-bikes,

guidance have been XX.X%, gross above Excluding range. high-end profit this our our would slightly charge, of margin the

to scrap Fab our party year-over-year mix. rate X, cost, the driven third higher unfavorable and by utilization at product was addition In lower our costs, margin profit a gross lower foundry

$X.X was QX million, in operating pre-tax Turning in million million and to was last year loss compared XXXX QX benefit now in of QX, was negative mainly million, tax intercompany to our XXXX in $X non-cash operating and QX in million $XX.X our income in QX $XX.X million $X.X included of million compared $X.X QX We in QX $X were million, to $XX.X and loans. to foreign ago. SG&A $XX.X a and its year. in million, was last QX in entity recognized million operating compared million million year in QX $X.X a in compared $XX.X connection XXXX. in $XX.X with in a Korea, QX operating QX, QX QX million $XX.X expenses. charges in QX currency compared million, QX Adjusted operating in by and was $X operating operating EBITDA to loss QX ago. Adjusted of million $XX million due losses translation $XX adjusted to in to R&D in QX of $X.X $X as as million driven primarily book compensation Stock loss income QX in million year. and compared $XX.X XXXX. million to expenses in In QX

of Korea, foreign cash benefit of expense a items $XX.X tax expect the full-year the we and is operating volatility. code, in multiple application fall million excluding of million, in further U.S. impact as the QX and due of a in GAAP entity to $X the of million million timing was the year differences. such XXXX, currency multiple with in in to any taxes as QX range from U.S. ago. a QX to and $X.X realized [net $X our an For $XX.X Section jurisdictions Tax at XXX tax loss compared wide book million [ph] gains of tax other expected Net income] range FX in This of

per QX in share GAAP in $X.XX compared as loss Our per of diluted per was in earnings share share with $X.XX, a year. and QX of last $X.XX QX an loss

in Our $X.XX year. down in $X.XX, and diluted in QX share from was QX down per last $X.XX from non-GAAP earnings QX

Our in about program by Board. million as buyback outstanding repurchased that repurchase shares reflects to of shares that XX.X shares, authorized announced was exercise were the mid-September, quarter diluted part for our and continue the we expanded we share which the

the to Moving balance sheet.

This at end from of at $XX.X compares was balance QX QX. the million $XXX.X million, cash the net Accounts QX. of decreased XX.X% receivable, end million. totaled $XXX.X Our to

of certain was outstanding accounts to attributable QX. revenue customers. related sales million $XX.X receivable, along in days payments net QX in totaled decrease net Our days was compared and the in QX million, XX timing in decrease from the The in with for QX. to $XX.X XX days Inventories, quarterly

Our for inventory average QX XX and days XX was days days in for QX.

reduction was pricing our lower which is $XX.X including plan now $X CapEx about CapEx XXXX CapEx total our This than for and million million, million, expenditures QX plan, special equipment. X better to capacity the be $XX.X Fab of we anticipate capital and prior of result of deployment is approximately terms certain delaying million capital $XX Regarding a upgrade. negotiating

lower XX% is we $XX CapEx XXXX, be XXXX For anticipate level. nearly now approximately from million, to the which

want I statements. provide our guidance, financial some see and to to you turning cash flows year-to-date clarity QX Before our on in our that

our Won Korean our pro this picture. may a cash impact of operating the from the operating standpoint, quarter the about result are commercial of denominated As translation, a about currency a FX dollars, our functional cash of for are On provide sales reporting volatility Won From in flow was contractually in negative translation basis, U.S. flow majority [ph]. U.S. to dollars [$XXX,XXX] Won. Korean the spending dollars, confusing U.S. but our against Korean a excluding forma of year’s half

against risk to cash U.S. negative being U.S. whose our is into U.S. certain recent hedging our balance in dollar dollars. the Korean policy hedge Won turned current Our is is volatility due to entering instruments, of weaker out also in revenue quarters the the predominantly be our to expectation the Therefore, impacts dollars. than to by

guidance. our moving fourth quarter Now, to

While the $X of $XX $XX million, QX, revenue to actual for Magnachip vary, X be of Foundry Transitional range may Services. about including currently expects results million in Fab to million

guidance million revenue Yujia. call to hedging estimated an instruments. and Thank QX now be margin exchange Our the loss XX%. you to in turn XX% includes the Yujia? foreign over of to profit I’ll range $X back from Gross currency

Yujia Zhai

earnings Shinyoung. call. prepared That concludes this remarks Thanks the session. Q&A please the of begin section Operator,

Operator

& comes Difficulty] Certainly. Company. [Operator the of Needham question from [Technical first Instructions] Our line

Unidentified Analyst

Yes. Thanks few questions. a on for taking YJ, just the questions business. OLED my

Chinese on there? levels characterize all year, you much right maybe exists if of the handset wondering until of provide about you we're still your how doesn't the about just And at I mid-XXXX, the correctly, now? but units like it has won't inventory could yet, you still comment mid-XXXX, talked market amount insight coming clarity You terms timeframe. smartphone The can normalize that your in inventory vantage in think channel been market I inventories any seem on from some bottom is point channel that the heard down if

YJ Kim

question. the Raj, thanks for Yes. asking

So, we ourselves. that silicon for can't by customer really or signs the vendor, vendor tell each vendor, see silicon customer but that’s the by we

think as that product with qualified, go it to half QX in I sampled a and to that being also and QX we out know, production we a inventories So, take and product. we you this between new lot expect wrote first we that of And have year.

go year. to the month, first to and two half of we And expect to new half. then out that to consume expect second we in middle this next and production We that tape by products expect

but our what So, and our comments knowledge say I those industry based with can't on the may be. customers and our they programs, for

say. we what that's So, can

Unidentified Analyst

Got it.

Okay. It makes sense.

then so, that also of because at freed-up, that demand nanometer, on capacity And display, your you're impacted but that that's is mentioned there shortages in you XX-inch you panel XXXX. reduction XX – seeing in you that the Samsung design more in mentioned particularly are being

XX-inch kind guess XX nanometer, just and on So, kind of reconcile, happening XXXX? the what's of commentary about I

YJ Kim

Yes.

slowdown in And qualified variability. you the with know the do nanometer. see better three economy, have XX we So, we

as and a out or myself foundries have and customers allocation customers. more our we activity our crosscheck been we result involving as have RFQs also meeting and coming level with XXXX there from arrangements working the do we verbal And in with either more XXXX. And the from also see all top for and we our foundries that's written our and commitment are So, customers. see the more working with partners

out year and to working come next are we So, and beyond. recover

Unidentified Analyst

just question. And it. Got last

almost market cash XXX The million, half around sitting cap of cap currently on market cash. You're XXX is the balance on million sheet. the is sitting in of so

your balance what sheet where is now? given Thank on price for cash the the stock intentions So, are you. that

YJ Kim

Yes.

formed committee looking maximize review value. are option every to that's strategic we and a have do at we shareholder So,

the a implement And out maximize a One of also that. is to come downturn, us and this also started all as we're of downturn help we balance value buyback, them sheet the looking which also to well. we're stock and means strong will shareholder still doing various during

Unidentified Analyst

Thanks.

Operator

Thank with question Martin the Yang of you. Oppenheimer. And line next our from

Martin Yang

invested you question. expenses your Can you're Hi, are customers to will relating associated you in raising to in some be engaging that talk you my the about new the potentially China? for YJ. Thank first [indiscernible], taking of

Shinyoung Park

to are lower. expenses mean OpEx that, R&D was So mainly mean I that’s due to some QX I of you of down we and the a and incurring That's are that's true kind mean activities of our design to Martin, seeing our – really in R&D why but new, support currently little some, is our stock I that compensation to, due expenses, those not kind kind down R&D of customer. mainly that's going support

Martin Yang

and China, you activities how China? in COVID has Got business do your see restrictions business in development it. And you as your expand the impact

YJ Kim

yes, this So YJ. Martin, is

So, thank you.

mean, They but it So, it's new doesn't FAEs and – quarantine have anyone it [turns we engineers working like – I our from] to go send our [ph] just else, there. through with customer.

the So, that trades of with world. freely and becomes the hoping parts more and the China quarantine more but we're Western available reduced

Martin Yang

capacity are [ph] Thank seeing either constraints you. XX] yourself for me, [XX question Last any or from you at today?

YJ Kim

most is OLED our in So, XX of nanometer. product

seeing better as nanometer. before, of that So, we I said have for XX have those. three And written availability we commitment we XXXX verbally, And more have qualified or XXXX. and are either a we foundries

are and supply design We the wins. more activities up. be to a see will with limiting So, excited the the business them capacity to of long-term agreement to design many but have win And also we expect that started factor, grow not we picked see together.

Martin Yang

That's very you much. me. Thank it for it. Got

Operator

De of with question ROTH next our comes And you. Capital. Thank line the Silva from Suji

Suji De Silva

Shinyoung. YJ, Hi,

kind that, support I China foundries do domestic available [potential issues] just I'm what have reduced you securing, you're geopolitical the foundry the the for de-risk to the So, of [ph]? supply curious China business,

YJ Kim

Yes. Hi. Suji. Yes,

outside global Korea. the are customers as our have panel as through disclosed, – that than located foundries all you we make comfortable as know, but that for we well haven't the we foundry, them. other out geopolitical – And foundries, the choose the are working we really is the situation, XX-inch So, customers sure using

we relationship. that's work So, out the how

doing. what So, that's we're

Suji De Silva

that Thanks. said maybe, there that? does business, you worked that is has kind understand that out that toward consumer Okay. the the the of And Help inventory that us reaching of impacted then down to that. in how next Is adjustment? be Power for lay or for quarters, of was few back-end by kind segment inventory spending,

YJ Kim

I as see but a the still industrial premium said the think we little I lines. strong and be other before to segment consumer seems soft, today, product

So, normalized, the more sector be as soon as think becomes I should consumer okay. think I we

So, current at that's time. our this obviously outlook

Suji De Silva

Okay. And my the last question gross is on margin.

for be Beyond guidance [ph], intermediate-term XQ, year thinking should what's [XXXX] into the takes what maybe the margin gross of and the as are we some progresses? puts outlook here about on the

Shinyoung Park

I one time. a at only mean, guide we quarter

So, a really are we the margin, guided like gross XXXX, multiple that's factors, [better haven't but for full-year margin] like they gross [ph].

mix that of product obviously, foundry time and be XXXX. the going we're cost utilization fab now our foundry same So, to at internal XX-inch external was impacting wafers, but the our cost,

So, one-time inventory mean, we we recognition a of back we – the of but and kind for target two reserves little we a have hit – our, little from past disclose scrap costs. really the kind are we the trying of are, because the had, XXXX, I don't quarters to to get

are year. to we a trying to get level next kind normalized So, in of back

Suji De Silva

Thanks, Shinyoung. Thanks, Okay. YJ.

Operator

I'll any for no further Relations back remarks. questions. to call over And closing I’m Zhai, the now representative, Yujia showing you. hand Thank Investor

Yujia Zhai

Thank operator.

and that concludes Thanks details conference everyone Investor on events Relations website. earnings future QX of our call. for Magnachip’s Please our care. take So, look

Operator

call. concludes and Thank disconnect. now this may gentlemen, you and conference today's for you Ladies participating

Magnachip Semiconductor (MX) 2 Nov 222022 Q3 Earnings call transcript